Grant for incentivizing native CoW-AMM integration

Introduction

The CoW AMM design was launched a few months ago by the CoW DAO as an alternative AMM design that mitigates many of the problems known in the existing and widely used AMMs today.

To initiate the launch, a simple framework was set up that is generating programmatically CoW AMM orders every few minutes for the existing CoW AMMs based on some oracle prices. However, to take full advantage of the power and potential of CoW AMMs, a more flexible and dynamic way to accessing their liquidity is needed. Specifically, solvers should be allowed to trade with the CoW AMM in any batch auction they want to and with amounts determined by them.

The core backend team has addressed this by setting up the infrastructure so that solvers can indeed control the ways they trade with a CoW AMM. Moreover, CIP-45 has established a strategic partnership with Balancer around the launch of CoW AMMs on Balancer. Thus, to incentivize solvers to natively integrate CoW AMMs as soon as possible, we propose to set up a bounty of total value 10k DAI financed by our grant program.

We now provide some details around CoW AMMs and then proceed to define the terms and rules associated with the proposed bounty.

Function maximizing AMM

In the initial stage of CoW AMMs, an oracle was used to add orders for those AMMs to the orderbook. While this is relatively close to the description of CoW AMM in this paper, it does restrict the solvers in executing the intent of Cow AMMs. The goal of this grant is meant to unleash the full potential of CoW AMMs and turn them into a fully functioning function maximizing AMM.

With the recently developed backend infrastructure, instead of adding individual orders to the order book on behalf of a CoW AMM, solvers can freely propose trades for those AMMs. Those trades are of very similar form as normal user trades as they require to specify traded amounts and a fee. Unlike regular orders, solvers can choose which of the two tokens is the buy and which is the sell token.

There is a hard restriction enforced on the smart contract of not violating the constant product invariant of CoW AMMs. Providing better executions to a CoW AMM is rewarded similarly to how it is rewarded for user orders, via surplus which enters ranking and rewards.

CoW AMMs do pay network fees as normal user orders do and settle at uniform clearing prices and uniform directional prices. CoW AMMs can be used in CoWs with other orders or traded with external liquidity, but there can ever be at most one order for the same CoW AMM in a batch.

Implementation via JIT orders

Some details can be found in the documentation and in the relevant forum discussion.

Bounty specifications

A total reward pool of $10K DAI will be distributed among up to 3 solvers who successfully settle at least 30 Balancer CoW AMM JIT orders before 2024-08-31 23:59 UTC. Of these 30 orders, a minimum of 15 must be CoWs between a user order and a Balancer CoW AMM, and a minimum of 5 must be rebalancing trades in which the CoW AMM trades against external liquidity.

If only one solver meets the criteria, they will receive 10K DAI. If two solvers meet the criteria, the first solver will receive 6.7K DAI, and the second solver will receive 3.3K DAI. If three solvers meet the criteria, the prize pool will be split 5k/3K/2K.

For ranking solvers:

1. COWs receive 3 pts
2. Rebalancing trades receive 2 pts

Only in the event of a tie:

1. Highest number of COWs settled against CoW AMMs wins; and then
2. The first to settle a COW wins